"Don't believe the hyperinflation hype - dare to make cuts"

London asset managers 36 South are launching a "hyperinflation fund" for those convinced that money-printing by central banks around the world must lead to Weimar or Zimbabwe soon enough.

Flush from last year's 234pc rise in their Black Swan Fund, they are betting that quantitative easing and war-time deficits have sown the seeds of inflation reaching "10pc, 15pc, 20pc, or more". They capture the mood of the times, but are they right?

We know that the Fed's balance sheet has exploded (to $2.07 trillion), but that is only half the story. Data from the St Louis Fed shows that the "monetary multiplier" has collapsed from a decade-average of 1.6 to the depths of 0.893. The "velocity" of money has slowed to a crawl.

Professor David Beckworth from Texas State University said the Fed's efforts to boost the money supply are barely keeping pace with the deflation shock. Stimulus is not gaining traction. The credit system is broken.

Where will the inflation impulse come from given that capacity use is at a post-war low of 68pc in the US, and nearer 60pc worldwide? The immediate threat is wage deflation.

Tim Congdon – a hard-money Friedmanite from International Monetary Research – says the Fed is still not easing enough, perhaps because it is spooked by so much criticism or faces a mutiny by its own hawks. "If Ben Bernanke and his officials are listening to this sort of stuff and taking it seriously, they are making the same mistake as the Fed in the early 1930s," he said. The US "output gap" is near 7pc. That is a powerful lid on inflation.

The sin has been to let M2 money growth wither since January, to let bank lending contract at a 5pc annual rate, and to let 10-year bond yields rise to nearly 4pc. The Fed pays lip service to the Friedman-Schwartz theory of the Depression, but has not digested the lesson....MORE